CPD IN THE NEWS

Bloomberg News - August 22, 2014, by Jeff Kearns, Simon Kennedy and Michael McKee - Divisions within the Federal Reserve over how long to keep easy monetary policy are already in evidence in Wyoming as investors prepare for Chair Janet Yellen’s keynote speech.

Fed Bank of St. Louis President James Bullard told Bloomberg Radio that the U.S. central bank may begin tightening monetary policy earlier than officials previously expected.

“The evidence is leading toward an earlier increase than would have been in the works earlier this year,” said Bullard. “Labor markets have improved quite a bit relative to what the committee was thinking.”

Bullard spoke after Kansas City Fed President Esther George told Bloomberg Television that broad-based employment gains suggest the U.S. economy is strong enough to withstand higher interest rates. Philadelphia Fed President Charles Plosser, who voted against the Fed’s policy statement last month, told CNBC he’s concerned about the Fed not adjusting policy appropriately.

By contrast, Atlanta Fed President Dennis Lockhart urged more patience, warning in a separate interview with Bloomberg Radio against “moving prematurely and snuffing out some progress.”

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Robots don’t steal jobs, the U.S. labor market is less flexible than it was and workers haven’t suffered unprecedented periods out of work.

Photographer: Bradly Boner/Bloomberg

Fed Chair Janet Yellen arrived at the dinner to be greeted by about 10 people wearing bright green T-shirts emblazoned with “What Recovery?” and carrying placards with labor market data. Close

Those are among the conclusions of papers being presented at the symposium. Here is a review of their contents, which can be read in full on the Kansas City Fed’s website.

Robots and computers don’t steal as many jobs as some believe, and automation actually benefits many workers, Massachusetts Institute of Technology Professor David Autor said in his paper.

A key reason humans aren’t obsolete yet is that simple tasks such as visually identifying a chair, which any child can do, aren’t so easy for engineers to teach to computers, Autor said.

“Journalists and expert commentators overstate the extent of machine substitution for human labor and ignore the strong complementarities that increase productivity, raise earnings, and augment demand for skilled labor,” he wrote. “Challenges to substituting machines for workers in tasks requiring flexibility, judgment, and common sense remain immense.”

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The U.S. labor market became less fluid in recent decades partly because of an aging workforce, a shift to older businesses, and the spread of occupational licensing and certification, economists Steven J. Davis and John Haltiwanger wrote in their paper.

The economists define labor market fluidity as “flows of jobs and workers across employers.” The paper found the U.S. “underwent a large, broad-based decline in the pace of labor market flows in recent decades.”

“An aging workforce is a factor behind the slowdown of worker reallocation,” the paper said.

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U.S. workers in the aftermath of the 2007-2009 recession haven’t experienced unprecedentedly long bouts of non-employment, according to a paper by economists Jae Song and Till von Wachter.

Their findings “suggest that the potential for hysteresis in the aftermath of the Great Recession is moderate,” the paper said. Hysteresis posits that people out of work for too long have a harder time finding work, leading to a persistent decline in the employment-to-population rate

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Policy makers would benefit from a better understanding of labor markets, economist Giuseppe Bertola argued in a paper that weighed the impact of rules making those markets rigid or flexible.

Rules that protect workers from job losses and provide more generous unemployment benefits can soften and smooth shocks to the economy, said Bertola.

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George opened the symposium late yesterday by putting the presenters on the spot.

The last conference devoted to labor markets was 20 years ago, George told the group of almost 200 as they ate steak and salmon dinners beneath elk antler chandeliers.

The presenters and discussants back then included five future Nobel Prize winners and two academics who would go on to be central bankers: Bank of England Deputy Governor Charles Bean and Stanley Fischer, the Bank of Israel governor who became Fed vice chairman in June. Fischer sat at one of the front tables last night.

“So for those of you that will be on the program,” George said to laughter, “We’re either setting you up for a blessing or a curse.”

This year’s topic is “Re-Inventing Labor Market Dynamics.” In 1994 it was “Reducing Unemployment: Current Issues and Policy Options.”

George said she went through the 1994 proceedings only to find central bankers and economists are still grappling with some of the same basic issues today.

“I saw that the discussion included things like the decline in demand for low-skilled workers due to technology and the challenge of the long-term unemployment,” George said. “And questions were raised by that symposium, as they are today, about the usefulness of the unemployment rate as a measure of economic slack.”

It reads like a list of the most vexing issues the Fed faces now and will be attempting to tackle today and tomorrow.

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Fed Chair Janet Yellen arrived at the dinner to be greeted by about 10 people wearing bright green T-shirts emblazoned with “What Recovery?” and carrying placards with labor market data.

The protesters had traveled to Wyoming to highlight the plight of “struggling workers from around the country” who want the Fed to pursue “full employment that reduces poverty and expands the middle class,” according to the Center for Popular Democracy, a Brooklyn-based organization. The backs of their T-shirts had a graph comparing the performance of wage growth among the top 1 percent and the rest.

Ady Barkan, a staff attorney with the group, spoke briefly with Yellen at the door of the lodge’s Explorers Room. “She said she understands the issues we’re talking about and is doing everything they can,” he said, after she had entered the room.

Yellen has regularly cited weak labor markets as a scourge of the economy she’s trying to boost with easy monetary policy.

Shemethia Butler, who works part time at a McDonald’s Corp. restaurant in Washington, was one of those to make the trip. The 34-year-old said that while she isn’t up on monetary policy, she wants policy makers to know she fears higher interest rates for her and her community. She said she works 25 to 35 hours a week for $9.50 an hour at a job she’s had for just over a year. Before that she was unemployed for two years.

“There’s no recovery,” Butler said. “The economy is broken because there aren’t enough jobs for people like me.”

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Yellen’s speech will be the main event of the first full day of the conference. She will speak at 8 a.m. Mountain Time today.

Her address will be followed by the presentation of the paper by Davis and Haltiwanger.

Autor will then discuss job polarization before a panel on demographics featuring Karen Eggleston of Stanford University, David Lam of the University of Michigan and Ronald Lee of the University of California, Berkeley.

European Central Bank President Mario Draghi will deliver the keynote luncheon speech.

Tomorrow, Von Wachter and then Bertola will present their papers.

The final panel will provide an overview of labor markets and monetary policy. It will include Bank of England Deputy Governor Ben Broadbent, Bank of Japan Governor Haruhiko Kuroda and Brazilian central bank chief Alexandre Tombini.

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The conference is lacking Wall Street participants for the first time.

An exception is Jacob Frenkel, chairman of JPMorgan Chase International, who is attending in his capacity of chairman of the board of trustees of the Group of 30, a private-sector group of mainly former policy makers which advises central banks and governments. Tim Adams, president of the Institute of International Finance, is also present.

Draghi, Kuroda and Bank of Canada Governor Stephen Poloz provide international central banking firepower.

Among academics in attendance are Alan Blinder of Princeton University, Harvard University’s Kenneth Rogoff and Martin Feldstein, and John Taylor of Stanford University. President Barack Obama’s administration is represented by Jason Furman, chairman of the Council of Economic Advisers and Jeffrey Zients, director of the National Economic Council.

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The backdrop for the symposium and Yellen’s speech was set by the release of the minutes from the Federal Open Market Committee’s July discussions.

Fed officials in July raised the possibility they might raise rates sooner than anticipated, as they neared agreement on an exit strategy. Some participants were “increasingly uncomfortable” with the pledge to keep interest rates low for a “considerable period,” the minutes said.

At the same time, “many participants” still saw “a larger gap between current labor market conditions and those consistent with their assessments of normal levels of labor utilization.”

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Some recent stories on the U.S. labor market:

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The opening day of Jackson Hole has been associated with stock-market gains in each of the past seven years. The Standard & Poor’s 500 Index rose an average 1.3 percent on each of them from 2007 to 2012, following speeches by then-Chairman Ben S. Bernanke, who skipped last year’s conference.

The biggest climb was the 1.9 percent of 2009, when Bernanke said the economy appeared to be “leveling out.” Gains also followed his signals of 2010 and 2012 that fresh asset-purchases were imminent.

The bar is therefore set high for Yellen who identifies slack labor markets as a reason for easy monetary policy. Economist Ed Yardeni says the “Fairy Godmother of the Bull Market” won’t let us down.

Still, Steven Englander of Citigroup Inc. says that because “dovishness is increasingly anticipated,” Yellen may have to intensify her support for low interest rates if risk-assets such as stocks are to rally anew.

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